How to get stocks' total return?

[DGPickett]

Total Return is the real thing to look at, but it gets messy, as shares
bought with dividends have $0 basis in the context of total return.  If you
buy some shares for $1000 5 years ago, and reinvest the dividends, then the
rate of total return is the current value divided by the $1000, and for
annual, the 5th root of that (use logarithms to calculate n.n fractional
years).

Now, if you spend the dividends, your accounts do not make a very good place
to calculate the total return.  Past dividends need to be reinvested for
that calculation.  Otherwise, how do you account for the time value of those
dividend dollars you got years ago?

Accounting programs tend to deal with dividend reinvestments as new
investments, which they are, so you can see they intrinsically ignore total
return.  GnuCash does not seem to allow tight connection of dividends
received to stocks owned (avalanche of corrections to follow), so reporting
on dividends is difficult.  I keep the cash including dividends for a
security in the parent folder, but I do not have 1 parent for each security,
so I annotate the description.  Overloading a free field almost always
points to a missing field or feature.

Although most of my accounts do dividend reinvestment, for my curiosity
about Total Return, I use the many nice Total Return numbers at free
Morningstar Portfolios (week, 1-3-12 month, 3-5-10 year, year to date, and
by year 2012-2008.  The actual price for dividend reinvestment varies a lot,
too!  However, it is an important aspect of stock pricing, as the sales
price of stocks going through an ex dividend date does generally take a
step, so much that many places like Yahoo finance post adjusted prices.  The
step is not exactly commensurate, so big options investors often do massive
dividend plays to capture the lazy response profit.

The decision to sell or buy more should not be based on whether *you* won or
lost in the past, but on the future prospect (as best you can divine it,
partly on general past performance).  I have faith in things I bought that
have not hit bottom (early to the party beats late), but that I feel will
take off in the future.  That's investing!



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